Correlation Between Merck and International Emerging

Can any of the company-specific risk be diversified away by investing in both Merck and International Emerging at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Merck and International Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and International Emerging Markets, you can compare the effects of market volatilities on Merck and International Emerging and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Merck with a short position of International Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and International Emerging.

Diversification Opportunities for Merck and International Emerging

0.86

Correlation Coefficient

Merck  International Emerging

Very poor diversification

The 3 months correlation between Merck and International is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and International Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Emerging and Merck is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Merck Company are associated (or correlated) with International Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Emerging has no effect on the direction of Merck i.e., Merck and International Emerging go up and down completely randomly.

Pair Corralation between Merck and International Emerging

Considering the 90-day investment horizon Merck Company is expected to generate 1.83 times more return on investment than International Emerging. However, Merck is 1.83 times more volatile than International Emerging Markets. It trades about -0.04 of its potential returns per unit of risk. International Emerging Markets is currently generating about -0.13 per unit of risk. If you would invest  10,210  in Merck Company on October 9, 2024 and sell it today you would lose (238.00) from holding Merck Company or give up 2.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  International Emerging Markets

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

International Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Merck and International Emerging

The main advantage of trading using opposite Merck and International Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, International Emerging can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in International Emerging will offset losses from the drop in International Emerging's long position.

The idea behind Merck Company and International Emerging Markets pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Global Correlations module to find global opportunities by holding instruments from different markets.